In order to pressure businesses to pay their debts, an increasing number of companies are applying for Winding Up Petitions because of the serious consequences for a company if they are ignored. If you receive a winding up petition it is vital to act quickly or risk losing your business.
If a creditor of a limited company wants to force the closure of a business due to an outstanding debt, this process is known as winding up. The creditor must first issue a statutory demand for the payment of their debt. If the problem is not resolved within 21 days, a petition for the winding up or closure of the business can be issued.
When a winding up petition is granted by the court, the company in question will be liquidated. The directors of the company can of course challenge the petition. However, once a winding petition is issued, there will be serious consequences for the business even if the debt owed is subsequently paid or successfully challenged.
Bank account frozen
After seven days the London Gazette will publish details of the winding up petition. The company’s bank will be made aware of the petition and will normally freeze the business bank account. This means that cash cannot be paid into the account and payments cannot be made.
In addition to its bank accounts being frozen, the company is legally prevented from selling any assets or property. As such it is extremely difficult for the company to continue to trade.
If your company receives a winding up petition, there are certain actions that you can take:
Validation Order
You can apply to the court for a Validation Order to allow specific transactions or payments such as staff wages. However the options are quite limited. The cost of applying for a validation order will have to be borne by the company directors.
Company Rescue
If you quickly go down the route of a legal business rescue process such as Administration or a Company Voluntary Arrangement this will take precedent over the other court action. As such a winding up petition would automatically be overturned.
If your business is in receipt of a winding up petition, the business rescue solution you will normally consider is a company voluntary arrangement. This solution will enable the directors to retain control of the management of the business unlike administration where the directors will lose control.
Unfortunately, the option of pre-pack administration or phoenixing is not available as this requires the sale of company assets and this transaction cannot be undertaken once a winding up petition has been issued without a validation order from the court.
Given the serious implications of receiving a winding up petition, the best thing is to avoid this situation all together. However, if one of your creditors issues your company with a statutory demand or you are actually in receipt of a winding up petition, it is very important that you take specialist advice as soon as possible.
There are actions you can take to prevent your business being wound up. However, these options will diminish unless you act quickly.
If you have a Winding Up Petition, talk to us about the best solution for your situation http://coopermatthews.com/winding-up-petition.html.
Derek Cooper is Managing Director of Cooper Matthews Limited and a member of the Turnaround Management Association UK.
Cooper Matthews specialise in Business Recovery Services Advice providing practical insolvency advice for businesses with financial problems and to Directors with Personal Financial troubles. They have significant experience in working with small to medium sized businesses.
There are no posts related to Why a Winding Up Petition is Bad News For Your Company .
Leave a Reply